Bad Facts Make Bad Law – Condo Version

Condo bylaws that restrict the ability of a condo board to sue the developer came in a for a beating by the Massachusetts Supreme Judicial Court. While refusing to prohibit all restrictive bylaws, the Massachusetts high court roundly criticized the bylaws in question. Deservedly so.

The condo bylaw restricted the ability of the condo board to sue the developer as follows:

neither the Trustees acting in their capacity as such Trustees or acting as representatives of the Unit Owners, nor any class of the Unit Owners shall bring any litigation whatsoever unless a copy of the proposed complaint in such litigation has been delivered to all of the Unit Owners, and not less than eighty (80%) of all Unit Owners consent in writing to the bringing of such litigation within sixty (60) days after a copy of such complaint had been delivered to the Unit Owners and specifying as part of the written consent a specific monetary limitation to be paid as legal fees and costs and expenses to be incurred in connection therewith, which amount shall be separately assessed as a special assessment effective forthwith at the time of said affirmative consent.

Thus – 80% of all unit owners had to sign on affirmatively, they had to be given a cap on the legal fees to be incurred, and they had to agree to an immediate assessment covering the entire legal budget at the outset.

The underlying facts included an engineering investigation of building envelope problems and an estimate of repair costs exceeding $2 million. And the original developer still holds more than 20% of the units, and could easily continue to thwart any attempt by the condo board to sue the developer. There is little wonder that the Massachusetts court held that this provision to be “void because it contravenes public policy.”

The court did refuse to ban any limitation in condo bylaws that might establish hurdles for pursuing litigation. It refused to adopt the argument of the condo association that any such restriction was per se in violation of the Massachusetts condo law. But the hurdles presented by the condo bylaws in question were simply too high and too onerous. This was not a good set of facts upon which to decide whether condo bylaws can be more restrictive than the condo laws.

Massachusetts courts have consistently upheld contract terms in commercial settings, even when those terms caused a severe hardship to one party. But in a consumer setting – which would include condo matters – the courts have normally sided with the consumer. And the developer’s attempts in this case to insulate itself from claims of deficiencies were too high-handed for the court to stomach. This is yet another example of bad underlying facts – overreaching by a business against consumers – giving the court an opportunity to cut down the developer’s efforts. The saving grace is that the court refused to prohibit any such limitations across the board.

The case is Trustees of the Cambridge Point Condominium Trust v. Cambridge Point, LLC, et al., SJC-12327 (Jan. 19, 2018).

Why is this on a construction law blog site? The claims most likely to be affected by any such bylaw restrictions would concern design and construction of a condo project.

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